May 5, 2020 - Economy

J. Crew bankruptcy is likely the first of many driven by coronavirus shutdowns

Reproduced from Moody's Investors Service; Table: Axios Visuals

Retailer J. Crew's Chapter 11 bankruptcy filing Monday "is likely the first of many companies to restructure in- or out-of-court in the next one to two years," S&P Global Ratings analysts warn in a new report.

Driving the news: J. Crew is the eighth debt-issuing retail and restaurant company to default on its debt this year, equaling the total from all of 2019 in just over four months, S&P notes.

  • "We expect the economic shutdown and lingering social distancing behaviors to trigger a broad shakeout of retail," S&P Global Ratings analyst Sarah E. Wyeth writes in the report.
  • "The industry needs to meaningfully reduce its physical footprint and rapidly evolve to reach the post-pandemic consumer."

What's happening: Ratings agencies S&P, Fitch and Moody's have been slashing retail companies' credit ratings as their debt levels rise and income streams dry up because of the coronavirus pandemic.

  • About 30% of the approximately 125 issuers S&P rates in the retail and restaurant sectors now hold credit ratings that imply at least a 1-in-2 chance of default.

It gets deeper: A record high 412 companies are now rated B3-negative or lower by Moody's, a rating equivalent to B- by S&P and Fitch, and well-below investment grade.

  • That number is up from 311 last month and more than double the number of companies rated this low in 2019.
  • It's also 42% above the high of 291 touched during the financial crisis, Moody's says.

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